Financial ratios: formulas and interpretation

How to determine financial health of a business, its financial strength and profitability? How to evaluate a company's financial position? Every company typically prepares several financial statements that reflect its financial position. The main of them are: balance sheet, P&L or income statement and cash flow statement.

These financial statements are used by investors, market analysts, business managers and creditors to assess a company's financial situation and its general well-being. The best way to analyze and interpret financial reports is to use financial ratios (in Finnish, taloudellinen tunnusluku).

There are different types of financial ratios that can be calculated using the numerical values taken from these financial statements. Financial ratios are the indicators (metrics) of the company's performance and financial position, valuable tools for fundamental financial analysis.